New Jersey: Example shows the ineffectiveness of tax credits to retain businesses in the state

via NJ Spotlight | Number of the Day.

We must take the initiative not only to retain but to attract corporations to New Jersey. Our policy must be to aggressively seek potential transfers of capital to New Jersey from other states and overseas. We must be proactive. Here is why:

Once a corporation breaks the inertia and makes a decision to relocate out-of-state, the Christie administration  steps in and makes an offer, usually proportional to the number of employees that will remain in the state. Of course it is too late:  The wheels of relocation are already turning. The momentum is on the side of relocation and New Jersey’s offer has to be  disproportionally high for the for the number of jobs saved compared to what New York spends raiding our job market.

In this case below New Jersey gave a $82.5 million tax credit to save 470 jobs. New York gained 600 jobs for just $27 million.

That means New Jersey pays $175,532 for every job saved. New York will disburse  $45,000 per job gained.

“Tax credits in return for promises to keep jobs in state are always controversial, but the outcry over the relatively small $420,000 film tax credit for MTV’s reality show “Jersey Shore” helped drive Gov. Chris Christie to veto a Democratic bill extending the tax credit program. Still, New Jersey Policy Perspective, a liberal-leaning thinktank, juxtaposes the outcry over the so-called “Snooki” credit with the $82.5 million tax break recently given to London-based publishing company Pearson by the state Economic Development Authority. Pearson won the credit for moving 470 employees from Upper Saddle River to Hoboken, rather than to Manhattan.”

It goes on:

“Although the tax credits will keep those 470 workers in Hoboken, Pearson is still relocating 600 jobs from Jersey and other environs to lower Manhattan in return for additional tax credits of about $27 million from New York.”

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Free Trade Agreements do not benefit American workers

http://www.nj.com/business/index.ssf/2011/08/hoffa_makes_stops_in_new_jerse.html

Hoffa is right: Trade agreements do not benefit American workers. The unemployment situation we have today is directly caused by trade agreements signed by previous presidents, both democrat and republican. The U.S. government could tailor its tax laws to discourage the export of capital as a means to compensate for the agreements already in place.

That is what I intend to do in New Jersey if elected governor in 2013. However, it is a much more effective tool when it is done at the national level.

But as we can see, president Obama may go just in the opposite direction and sign agreements with the 3 countries mentioned in the article. And if a republican is elected president in 2012, we’ll see even more of that policy.

The most dangerous trend: U.S. companies give up on U.S.

http://finance.fortune.cnn.com/2011/08/10/jobs-growth-overseas/?iid=HP_LN

After decades of waging a campaign to destroy labor unions, undermine social legislation, influence Washington (see Citizens United VS FEC) with money, and eliminating American jobs for cheaper labor overseas, big capital has won: The American people (or the immense majority of it) are on their financial knees, ridden with debt and stagnant wages, or worse, unemployment.

This article goes: “William Melick, an economist at Ohio’s Kenyon College, notes that the 3.8 million offshore jobs created between 1997 and 2007 were complemented by 2.1 million produced by those same firms inside American borders.

Melick calculated  that for two-thirds of U.S. based multinationals, jobs in foreign affiliates and the U.S. parent company move up and down together; only in a small minority does foreign employment rise at the expense of American  jobs.”

http://www.dispatch.com/content/stories/editorials/2010/09/16/high-taxes-are-killing-jobs-in-ohio.html)

Although Mr. Melick is correct in his criticism of our tax code, his conclusions are erroneous or biased: Most companies that outsource do not increase parallel employment in the U.S. but quite the opposite. Most of the job growth in the U.S. nowadays is in the health and hospitality industries; two fields practically impossible to place overseas for very obvious reasons.

Of course, to attract corporations to back to the U.S. and to retain those still here, we must reduce the corporate tax. Unless we become a totalitarian nation – forbidding the movement of people and money overseas – tax incentives are the only way to retain industries here since labor will be cheaper in many other countries than in the U.S at least for the next 50 years. Unthinkable as it may appear to some, we must reward the greed and lack of patriotism of the corporate boardrooms.

But that is with regard to corporations. My position, which I intend to apply here in New Jersey if elected governor in 2013, is to reduce the corporate tax to zero. Dividend from those corporations operating in New Jersey will be also zero or very close to zero. But the dividend of those corporations which do not operate in New Jersey (above a certain income threshold and excluding retirement accounts) will be taxed very high. I currently have in my platform to tax off-N.J. dividend at 75% after federal tax. That is probably excessive and the final % may be considerably lower. But we will not treat those who invest elsewhere the same as those who invest at home. And we will still be very attractive to the corporations themselves, with a zero tax rate.

Consumer spending down in June. We need reforms

http://www.bloomberg.com/news/2011-08-02/consumer-spending-in-u-s-unexpectedly-falls-for-first-time-in-two-years.html

Lack of hiring and stagnation in the wages of those employed or sub-employed put a severe damping on household spending, as I have predicted. It is the logical consequence of the squeezing of the middle and lower classes.

In view that 70% of the economy is consumer spending and that those well-off are too small a minority, incapable of fueling growth all by themselves, significant recovery is highly unlikely until socio-political conditions are transformed. That is what I would try to implement in New Jersey if elected governor in 2013.

That is what my program, presented in this blog, is all about.

U.S. Anemic growth in 2nd. quarter

http://www.nytimes.com/2011/07/30/business/economy/us-economy-worse-than-expected-in-second-quarter.html

Consumers are the same people unemployed, underemployed, underpaid, and otherwise deeply in debt. How can anybody expect that we will pull ahead? Economy grew at an annual rate of 1.3%. Do not be surprised if this figure is revised downward later.

As stated in the article, a series of revisions of previous data also show that almost every piece of economic information put out in the past erred by excess. For instance, the growth of the 1st. quarter this year was not 1.7% as previously said but a mere 0.3%

In my opinion, there are structural deficiencies not so much in our economic system but in our political one. Additionally, the tax code is tailored to favor outsourcing of American jobs. Outsourcing is one the most important culprits in the current situation. People do not make enough money to spend and we do not manufacture enough to get out of the recession by exporting goods (yes, I believe this is still a recession; not a recovery, regardless of what the criteria is. It feels like a recession.)

Wall Street likes the G-6 debt plan; I don’t

http://www.bloomberg.com/news/2011-07-23/obama-debt-limit-deal-with-boehner-upset-by-last-minute-gang-of-six-plan.html

And that is because it would make offshore earnings tax free for American corporations. As the code is today, corporations must lobby and wait for congress to declare a tax holiday to bring their earnings back home without paying taxes. Otherwise, they must pay taxes on their profits.

Passage of the tax-free offshore earnings law would trigger the exodus of most U.S. corporations from the U.S. mainland, similar to the gold rush to California in the mid/late 1800’s, with the consequent loss of tens of millions of American jobs. Unemployment could double up within 5 years.

Regardless of any virtues anybody may find with the G-6 plan, that point alone is a terminal defect in my opinion. We must be changing tax policy to penalize outsourcing; not the opposite.

G-6 plan makes foreign dividend of U.S. corporations TAX FREE. That means more outsourcing

http://www.nytimes.com/interactive/2011/07/21/us/politics/20110721_DEFICIT_REDUCTION_PLAN.html?ref=politics

The topic is in page 4, point 6, last sentence: “and move to a competitive territorial tax system.” In the current tax code, corporations are taxed on their foreign-earned dividend but they do not have to pay the tax until they return the money to the United States to distribute among shareholders. Many companies choose to keep the money overseas and lobby congress for a “tax holiday.”

A tax holiday allows the corporations to return their earnings to the U.S. without paying tax on it. There have been one or two tax holidays. Under the G-6 plan, they will not even have to wait or lobby. They will be able to pay the dividend as soon as it is earned without paying any tax on their overseas profits.

If foreign dividend becomes tax free but U.S. earned dividend is taxed, what do you think will happen? It will encourage American corporations to outsource even more. The United States will become an empty shell full of tens of millions of desperate people trying to survive without work.

This plan is a travesty. It is a middle class killer. Rejecting it is a matter of survival for this nation.